Citizens' Issues
CVC recommends action against Suresh Kalmadi in the CWG scam

The Central Vigilance Commission has recommended action against Suresh Kalmadi, the former chairman of the CWG Organising Committee for ‘suppression of facts’ in a case of alleged corruption and nepotism

The Central Vigilance Commission (CVC) has recommended action against Suresh Kalmadi, the former chairman of the Commonwealth Games (CWG) Organising Committee for 'suppression of facts' in a case of alleged corruption and nepotism.

 

The CVC has conducted a direct inquiry on the basis of complaints of corruption and nepotism in the CWG Organising Committee. The probe report was referred to the Central Bureau of Investigation (CBI) for detailed investigation.

 

In response to an RTI query, the CVC said, “The CBI report (was) received and after examination, the Commission decided to close the matter. However, the Chief Vigilance Officer (CVO) is advised to take action as deemed fit in the matter of suppression of facts by Kalmadi and furnish an action taken report to the Commission.” 

 

The action taken report from the CVO, which acts as a distant arm of the Commission, was awaited, the reply said.

 

The CVC has also recommended registration of a disproportionate assets case against one of Kalmadi’s aides RK Sacheti, who worked as joint director-general in the Games organising body.

 

The Commission has received a complaint of alleged irregularity in appointments in the OC without proper education or professional qualification. The complaint also alleged that Sacheti was a 'backdoor entry'.

 

The CVC has called for a factual report from the CVO of the Ministry of Youth Affairs. The Commission expressed dissatisfaction over the CVO report and noticed “that a few CBI officers” were also alleged to be involved in the case.

 

“The matter was handed over to the CBI to register a case of disproportionate assets against RK Sacheti,” the anti-corruption watchdog said, adding that a report in this regard was awaited from the CBI.

 

The Organising Committee was mired in allegations of corruption in execution of projects related to the mega sporting extravaganza conducted by it between 3-14 October 2010 in Delhi.

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Pharma company earnings: Slowdown in the domestic formulation; exports solid

Except for Cipla and Glaxo which are impacted more by the slowdown in the domestic market, analysts expect an improvement in sales and EBITDA quarter-on-quarter for other pharma companies in the industry, says Nomura in its research note

The growth in the India pharmaceutical market is adversely impacted by trade

destocking. Though Dr Reddy’s has benefitted from a lower base in the previous quarter (the increase in sales towards the end of Q1FY14 due to the resolution of agitation by chemists in Maharashtra was accounted for fully in Q1FY14 numbers), the ongoing tussle between the trade and pharmaceutical companies regarding trade margins is likely to impact the growth adversely, according to Nomura Equity Research in its note on the pharmaceutical industry performance. Analysts accordingly factor in -3% growth in the industry. There is also a drop in prices as per the new pricing policy.

 

The key characteristics of the quarterly performance of the pharmaceutical industry are: a) a slowdown in the domestic formulation business due to the implementation of the new pricing policy and tussle with the trade on margins; b) key high value launches in the quarter, particularly by Dr Reddy’s and Sun Pharma; and c) rupee depreciation against key export currencies, points out the Nomura research note.

 

Except for Cipla and Glaxo which are impacted more by the slowdown in the domestic market, Nomura analysts expect an improvement in sales and EBITDA quarter-on-quarter for other pharma companies.

 

Nomura analysts expect the industry to record a consolidated revenue growth of 14.4% and EBITDA growth of 15.5% in 2QFY14F.

 

In its overall analysis of all companies in the sector, the research note says that medium-term growth drivers that include the US and India opportunities are intact for the sector. Further, rupee depreciation presents additional tailwind, concludes Nomura.

 

The Nomura research note estimates for the sector are given in the table below:
 

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Sales of Indian companies are slowing down

Weakening real activity has meant that top-line growth has been in freefall, dragging down profits along with it, says Nomura Equity Research in its research note on September quarter earnings preview
 

Net sales of Indian companies have been growing at an ever-slower pace over the past three years due to external considerations like inflation, depreciating rupee etc., according to a research note on September quarter earnings preview by Nomura Financial Advisory and Securities. This observation is clearly shown in the graphs below:

 

 

With topline growth falling, the bottomline has been under pressure in most companies. Nomura sums it up with the remark, “Weakening real activity has meant that top-line growth has been in freefall, dragging down profits along with it.” This observation is shown in the graphs below:

 

Sectors with high operating and financial leverage have to live with increasing pressure on operating and net profit margins, warns Nomura in its India Equity Strategy note. Industries facing domestic economy continue to remain a drag and are expected to make negative contributions to aggregate profit growth in the quarter.

 

The bright side of the problem has been that while competition has put margins under pressure, significant relief from weak raw material prices has been an important offsetting factor in protecting sequential downside to gross margins; Nomura notes that despite being in freefall, net sales growth has exceeded cost of goods sold growth over the past five quarters.

 

Even though recovery is expected soon, there is a warning that it may not benefit all investors in the stock market. Recovery is not broad-based - a large part of the year-on-year growth in market aggregates is on account of a handful of exporting sectors, beneficiaries of a depreciating rupee and the nascent global economic recovery. More specifically, excluding non-PSU oil & gas, autos (led by JLR), IT services and pharma from aggregate numbers: net sales growth falls from 14.1% to 8.6%; operating profit growth falls moderately from 15.5% to 13.3%. Net profit growth falls from 9.4% to no growth, points out Nomura.

 

Sector-wise performance and forecast is shown in the graph below:

 

 


The research note concludes that as the market recalibrates its expectations of a rate cutting cycle in the face of improving current account deficit numbers and the potential delay of the Fed taper (in light of the negative implications of the current fiscal impasse in the US0, valuation does not offer much comfort. The 12-month forward consensus-based earnings multiple for the market is currently at 13.2x (versus a five-year average of 14.3x) is not encouraging given the negative outlook on growth, with possible exception of upside from export growth.

 

The percentage change in corporate earnings for Sensex companies during the last quarter is shown below:

 

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